2016 (7) TMI 1464 - AT - Income Tax

Deduction u/s 54 - AO denied the benefit in respect of one of the two houses claimed u/s 54 holding that under the provisions of sec.54, the benefit can be claimed only in respect of one residential house. - Held that - The controversy is surrounding in the interpretation of the term residential house as occurring in section 54(1) of the Act. - the assessee is entitled to the benefit of deduction u/s 54 even in respect of house property in more than one residential house. - Decided against the revenue.

Summary

Issues:
- Interpretation of the term "residential house" under section 54 of the Income-tax Act, 1961.
- Entitlement to deduction under section 54 for investment in two residential houses.

Analysis:
1. Interpretation of the term "residential house":
- The controversy in this appeal revolves around the interpretation of the term "residential house" as per section 54(1) of the Income-tax Act. The jurisdictional High Court's decision in the case of CIT vs. D.Ananda Basappa highlighted that the term should not be strictly construed to mean a singular house. It emphasized that the building should be residential in nature, and the term "a" should not be interpreted as singular.
- Additionally, the case of Khoobchand M Makhija further supported this interpretation by stating that the context in which the expression "residential house" is used in section 54 does not imply a single house. The court clarified that the term "a residential house" permits the use of plural, as per the General Clauses Act.

2. Entitlement to deduction for investment in two residential houses:
- The respondent in this case, being a non-resident individual, had claimed a deduction under section 54 for investing in two residential houses after selling a property. The Assessing Officer initially denied the benefit for one of the houses, citing that the deduction can only be claimed for one new residential building.
- However, the CIT(A) allowed the deduction based on the decisions of the jurisdictional High Court in similar cases, emphasizing that the assessee is entitled to deduction in respect of investments made in two residential houses.
- The Tribunal, in line with the High Court decisions, held that the acquisition of two residential houses by the assessee falls within the scope of the term "residential house" under section 54(1). Therefore, the assessee was deemed entitled to the benefit conferred under the section for both residential properties.

In conclusion, the appellate tribunal dismissed the revenue's appeal, affirming the assessee's entitlement to deduction under section 54 for investments made in two residential houses. The judgment was based on the interpretation of the term "residential house" as discussed in previous High Court decisions and the specific circumstances of the case.